Rate cut warning for borrowers: Don’t be complacent!
RBA's interest rate cut is unlikely to be passed on by all banks.
The decision by the Reserve Bank to cut official interest rates after 12 months was a surprise, but it doesn't automatically mean that home borrowers will see better rates immediately.
While that's the lowest level that the cash rate has ever been at (and a direct response to a recent slowdown in inflation), banks may not choose to pass on the interest rate cut, in part or in full. In particular, because the official rate has been stable for so long, some lenders have lost the habit of linking official rate changes to their own consumer rates. We've seen several out-of-cycle rate rises in recent months, so it's risky to assume that every bank will line up.
Indeed, the last time the rate was dropped back in May, 60% of lenders, including three of the Big Four, did not pass on the full 0.25% cut, opting instead for a partial. We're keeping track of which banks have announced changes in this list, but frankly I'll be very surprised if they all come to the party.
If they do, and you're on a variable-rate loan with them, then feel free to break out a bottle of moderately-priced champagne. But if not, then it makes sense to consider if it's time to shift your loan to somewhere else offering a better interest rate.
finder.com.au calculation show that with the average national home loan of $357,200, a 0.20% reduction from the average standard variable rate of 5.12% down to 4.92% would save you approximately $500 per year. Over the typical life of a loan, that's $15,000 in your pocket. So if you're not one of the lucky ones with an automatic reduction, start looking around at other options.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.